Development impact and investment selection

Development impact

At the heart of our decisions

Assessing development impact potential

As a DFI, development impact is an integral part of CDC’s mission. Development impact encompasses many definitions of positive outcomes which result from successful investing in challenging regions of the world. These include the payment of local taxes, the creation of employment, the provision of goods and services to the poor, the mobilisation of further capital, the broad development of the private sector and a demonstration effect for future investors.

CDC has decided to focus the impact we wish to achieve on the growth of businesses and the creation of jobs, especially in places where the private sector is weak and jobs are scarce.

We remain interested in achieving and measuring positive impact across a broader dimension, but the job creation focus ensures we direct capital thoughtfully and prioritise our limited resources behind a mission that inspires us. We believe job creation is essential in both Africa and South Asia where two thirds of the those of working age are today without formal jobs and where demographic growth will greatly exacerbate this challenge over the next decade. At an individual level, employment has a transformative effect on the life of an individual and his/her family and dependents.

We have therefore created an ex ante tool that turns theory into practice and ensures we invest our capital towards our objective of creating jobs, especially in the more challenging places. This new methodology, designed with the help of our shareholder and academics and economists, is embedded in our investment processes and we use it to assess every investment opportunity at Investment Committee for its potential to create the impact that we are seeking.

Each investment opportunity is rated according to two factors:

the difficulty of the geography where the investment is made. Geographies have been graded across an objective scale; and

its propensity to create employment (including forward and backward linkages) based on the business sector. Business sectors have also been graded across an objective scale. Sectors prioritised are manufacturing, agribusiness, infrastructure, financial institutions, construction, health and education.

This approach facilitates our assessment of whether an investment or debt commitment made directly has sufficiently developmental impact potential for CDC. When reviewing a potential investment in a fund, CDC will consider the likely spread of future investments made by the fund manager, based on potential impact. Funds investing primarily in businesses with lower potential development impact are unlikely to be a good match for CDC. It is recognised that very few fund managers will be able to make investments solely in businesses having the highest potential development impact and our methodology does provide scope for flexibility.

When examining a Fund commitment CDC's considerations may include:

the spread of previous investments made by the fund manager and their likely development impact;

the pipeline of potential investments and their likely development impact;

the resources for deal sourcing and execution in different geographies, to match CDC's aspiration for the more challenging locations; and

the sector focus and expertise in the deal team, to match CDC's aspiration to support growth strategies in sectors which generate quality employment, both directly and indirectly.